Current market pressures have tipped the ratio of supply and demand off-balance, “leaning towards the direction of demand” with potential knock-on effects on consumer spending habits in the long-term, Mitja Repše, Director of Finance and Legal at PharmaLinea, told NutraIngredients.
Euromonitor’s Global Healthcare Trends: Inflation Surge report asserts that inflationary pressures are forcing producers to adapt development strategies as consumers transition from added-value brands to affordable alternatives.
Analysts comment that when times are hard, consumers naturally switch to lower-priced brands, seek out promotions and discounts, buy in bulk, and reduce spending on non-essential items.
“The higher consumers’ reluctance and scrutiny the more this is expected to spill over to consumer goods and services companies and hurt the industries with long-term negotiated contracts, such as the healthcare sector,” the report said.
Nevertheless, the industry has demonstrated considerable resilience in the past, such as during the 2008 financial crisis, and experts anticipate similar durability this time around despite the unprecedented circumstances, according to Repše.
“In fact, there is reason to believe that people are better prepared for this crisis than in 2008, where the financial crisis was much more swift and took everyone by surprise,” he said.
The economic situation may ease as early as next year with analysts predicting inflationary decreases in 2023 – “the question is how much”.
“Euromonitor predicts the global inflation rate to be at above 5% in 2023, Mintel predicts above 3% for the EU. We are cautious about these projections,” said Repše.
“The goal of all central banks is to hold inflation at about 2%, so 3-5% will still be more than 100% higher than the target of ECB for example.”
Equally, lower consumption will increase availability and reduce costs of raw materials and help return the supply and demand balance to normal levels.
“This is what we would hope may already be happening to the prices of certain commodities such as aluminium, wood, wheat, where prices have already gone down recently,” said Repše.
In the meantime, he suggested smart investment is the key to mitigating inflationary pressures in the long-term, such as looking at alternative energy sources and “energy self-sufficiency”.
Building strategic relationships with reputable suppliers is another way to offset risks and exposure to the availability and price fluctuations of raw materials, he said.
“It is timely and precise planning of material needs far in advance to ensure sufficient stock, avoid shortages, and enable purchasing at the moment of optimal price. These two things have aided us crucially in addressing this crisis.”
Investing in added-value products with a good marketing story may even present opportunities, when competitors are reining in their spending, Repše added: “If you invest smartly, keep marketing and sales running, perhaps even launch new products and proactively present novelties, you might take much more significant market shares than in times of economic stability.”
Euromonitor indicates that current market dynamics reinforce the need to focus on strategies that resist unforeseeable costs and market shocks. This trend has shaped the industry for the past decade, it said, and should continue to inform policies in the future.
“Looking for alternative raw materials, adopting more innovative production technology, automation and digitalisation are among the measures that will help businesses constrain costs and build resilience to cope with inflation and future shocks.”
Report authors added that inflation has slowed the digitalisation of manufacturing and transitions to sustainable practices in healthcare.
They explained that while digitalisation can increase efficiency, save costs, and reduce risks, growing input prices have stretched the investment payback in many cases and lowered profitability.
“Increasing prices of hi-tech components, soaring energy costs and lingering uncertainty pose the highest risk for healthcare manufacturing transformation,” they wrote.
Equally, sustainability initiatives are particularly expensive in healthcare and producers should prioritise downstream emissions, enter recycling and upcycling partnerships, and increase clear and transparent communication to protect themselves from rising prices.